Robust optimization approach for pricing and shelf space decisions with uncertain demand

Document Type : Article


1 Department of Industrial Engineering, Amirkabir University of Technology, 424 Hafez avenue, 1591634311, Tehran, Iran

2 Amirkabir University of Technology, Department of Industrial Engineering, 424, Hafez Avenue, Tehran, Iran


Pricing and shelf space allocation are two main operational decisions in retailing industry. This study simultaneously optimizes these two decisions in a supply chain with two manufacturers and one retailer under uncertainty of demand and price sensitivity parameters. Two manufacturers have different conditions in terms of parameters affecting demand and production. A robust optimization model and an exact solution approach are developed to find the optimal solution. The results show that price sensitivity, market potential and production costs can have a synergistic effect on optimal values. Moreover, the market potential can be relied on in managerial decisions as it has significantly positive impact on profitability. This parameter is found to be the most important tool for securing profitability of supply chain members.


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